Michael Milne is an Associate in our
Orlando office Kenneth Richie is a Partner in our
In a case with potential implications for owners, contractors
and subcontractors in Florida, the Third District Court of Appeal
has issued a ruling that significantly affects the time period
during which claims can be brought against subcontractors under
In BDI Construction Company v. Hartford Fire Insurance
Co., 995 So. 2d 576 (Fla. 3rd DCA 2008), the School Board of
Miami-Dade County contracted with a contractor for the construction
of a senior high school. The contractor subcontracted with BDI
Construction, which in turn hired a sub-subcontractor named E&F
Contractors, Inc. for the stucco and drywall work. As the
sub-subcontractor's surety, Hartford Fire Insurance issued a
performance bond for the work naming BDI Construction as the
obligee, or beneficiary.
Although there were allegations that E&F Contractors,
Inc.'s work was defective, BDI Construction made its final
payment to E&F Contractors, Inc. in 2001. In 2006, more than
five years after the final payment, BDI Construction filed a
third-party complaint against the surety and E&F Contractors,
Inc. The parties agreed that the applicable statute of limitations
to bring claims under a performance bond is five years. The issue
in the case was the timing of when the five-year statute of
Statue of Limitations Ruling
The surety prevailed on summary judgment by arguing the statute
of limitations accrued when the subcontractor completed its work
and was paid in full for that work. BDI Construction relied on
Federal Insurance Co. v. Southwest Florida Retirement Center,
Inc., 707 So. 2d 1119, 1121 (Fla. 1998) in arguing the statute
of limitations accrued when the entire project was completed and
accepted by the owner. The Third District Court of Appeal
disagreed, however, interpreting the Federal Insurance
case differently as to its application to subcontractors: "We
thus interpret the language in Federal Insurance to the
extent that the cause of action 'accrues on the date of
acceptance of the project as having been completed according to
terms and conditions set out in the construction contract' to
mean that the 'project' is the sub-contracted work, and the
'construction contract' is this context is the
sub-contract." In other words, once BDI Construction accepted
E&F Contractors, Inc.'s work as being complete and paid for
the work in full, the court ruled, the five-year statute of
limitations had begun.
Owners, contractors, and subcontractors who are named obligees
on performance bonds should be aware of this statute of limitation
application so claims are not lost by being time barred.
BDI is also of interest because this application of the
statute of limitations starting when the work is complete and paid
for in full may arguably be used in other contexts, such as breach
of contract actions for deficient work by subcontractors.
The word "defalcation" remains one of the more frightening terms in the title insurers' lexicon. But with the proper training, preparation, and response, defalcations can be managed, and the title insurers' exposure controlled.
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